California and Arizona Hotel Occupancy Falls to 37% Through August

The pandemic’s impact on the hotel market in California and Arizona has been severe but uneven, according to a new report from CBRE. The report shows that occupancy fell to 37% in California and Arizona from March through August. While there were some signs of rebound in the spring, the market slowed again in the summer. The decrease in hotel activity has had a significant impact on the hotel investment market.

“Historically low hotel occupancy rates have significantly lessened the number of hotel transactions since the pandemic began, although sales are still occurring for well-positioned hotels with good sponsorship, as evidenced by CBRE Hotels’ recent $216 million sale of the Newport Beach Marriott Hotel & Spa,” Brandon Feighner, managing director of the West division practice with CBRE Hotels Advisory, tells GlobeSt.com

Luxury hotels have been the most dramatically impacted by the pandemic, particularly due to limited distance travel and a dramatic decline in group and corporate travel. On the other hand, drive-to destinations and lower-tier hotels have outperformed the greater market. In this segment, occupancy has only declined 11% during the pandemic, according to the research from CBRE. “Luxury hotels have been disproportionally impacted by the onset of COVID-19 and the changes it has caused in how and why guests travel,” adds Feighner. “Mandates to slow the spread of the virus have limited or severely curtailed corporate travel, group meetings, social events, and international travel—all of which previously contributed to the success of luxury hotels in pre-pandemic times.”

While the market has performed unevenly since the start of the pandemic, it won’t necessarily recover in the same pattern. Feighner says that past recessions show the potential for rapid recovery in the luxury market. “We are not necessarily prepared to forecast that the luxury sector will take the longest to recover,” he says. “Following the Great Financial Crisis of 2008/09, luxury hotels initially suffered the greatest declines although they recovered faster than anyone predicted.”

Many are wondering, however, if the hotel market will be permanently changed by the pandemic, but Feighner says that it is too early to tell. “It is too early to tell if the changes experienced by the hotel industry over the past eight months will lead to permanent declines in hotel activity given the high level of uncertainly governing the decisions we all face on a daily basis,” says Feighner. “What I can say is that we have been in the forecasting business since the early 1930’s, and the hotel industry has always eventually recovered to a level that was greater than prior to the downturn.”